Highly secretive cartels linked to President Emmerson Mnangagwa and Vice President Constantino Chiwenga are reported to have taken over the operations of key state-owned companies, including private firms covering mining, agriculture and energy.
The cartels are also said to be involved in other illegal activities such as drug trafficking and smuggling.
This is contained in a damning report, 'Cartel Power Dynamics in Zimbabwe', published last week by South Africa's Maverick Citizen.
However, according to the report, the social and economic cost of harm caused by the cartels was evident in high unemployment, disease, and hunger although it was difficult to measure how much wealth Zimbabwe has lost because of these illicit activities.
"The study finds three types of cartels: the first being collusive relationships between private sector companies; the second being abuse of office by public officeholders for self-enrichment; and the third and main type being collusive relationships between public officials and the private sector," the report reads.
It said transport, mining, energy and agricultural sectors are being used by political patrons who are at the heart of almost all cartels.
"The cartels impact Zimbabweans in multiple ways - entrenching their patrons' hold on power, retarding democratisation, destroying service delivery for citizens and creating an uncompetitive business climate - which leaves Zimbabweans poorer, more severely under-served by their government and disempowered to hold the state to account.
"Cartels are deeply entrenched in many parts of Zimbabwean life. It is therefore vital to break the hold of the cartels over the state and its economy if Zimbabwe is to move into a more economically stable future. Under the current governing administration, the citizens of Zimbabwe and civil society can make small practical steps towards curbing cartels.
"To best achieve this, they would have to focus on leveraging the Constitution and Parliament, safeguarding those championing reform in the state, lobbying continually for the independence of key institutions, and reaching out to external actors to apply pressure on the private sector to disengage from cartels. This will not happen overnight, but it is an essential set of steps on the road towards a more prosperous Zimbabwe."
Zimbabwe is Africa's largest tobacco producer while, South Africa is one of the top tobacco consuming countries in Africa. Laws and policies aimed at preventing Zimbabwean cigarettes from supplying South Africa's large demand for cheap cigarettes have largely failed. They have created a sprawling underground network of cigarette smuggling whose tentacles have reached the top offices in both countries.
Zimbabwe authorities were also accused of under-invoicing exports to China.
"China reported to the UN's Comtrade system that it imported 55 million kilograms of tobacco from Zimbabwe in 2019 at an average price of US$9.06 per kg while South Africa reported imports of 85 million kilograms. However, Zimbabwe reported that it only exported 4.8 million kilograms to China at an average price of US$7.46 per kg in the same year and exported 141 million kilograms to South Africa at an average price of US$5.34 per kg.
"This points to under-pricing of exports, where tobacco, which is being directly exported to China at market price, is purported to be exported to a South African middleman who receives the payment from China, retains a significant amount in South Africa, and remits a smaller amount to Zimbabwe at the export price."
The Zimbabwe National Road Authority (ZINARA) is the largest statutory fund in Zimbabwe - receiving revenues of approximately US$200 million annually. The management of ZINARA has been ironically described by former minister Obert Mpofu as "not accountable to anybody".
"During the (now late President Robert) Mugabe administration, Mugabe appointed his clients to chair the ZINARA Board - Abdullah Kassim (2009-14), a lawyer who was Mugabe's front man in a dairy business, and his nephew, Albert Mugabe (2014-18).
"With the departure of Mugabe, the Mnangagwa administration dismissed the Albert Mugabe-led board, but the whiff of corruption lingers. In the past three years, ZINARA has had two board chairs and three CEOs. The current board chair, Engineer Michael Madanha, is a Zanu PF Provincial Vice Chairperson who previously served as a Deputy Minister for Transport and Zanu PF MP for Vice President Chiwenga's home constituency, Wedza South.
"Under both Mugabe and Mnangagwa, the Presidency has been deeply enmeshed in the corruption that takes place at ZINARA, the majority of which involves inflated state contracts."
The report notes there is a substantial amount of integration between the fuel retailing and fuel importing businesses.
"For example, Trafigura owns Puma, while Glencore has shareholding in Zuva. The key economic rent in the fuel industry is the cheap foreign currency the sector receives from the RBZ (Reserve Bank of Zimbabwe. Fuel importing companies acquire forex from the RBZ at the official exchange rate by changing local currency (ZW$) for U.S. dollars.
"This official rate is substantially lower than the parallel market exchange rate. At the time of writing, the official exchange rate was 1:83.4 and the informal rate was around 1:100. To capture the economic rent, a fuel importing company will have to use the cheap foreign currency to acquire local currency on the parallel market. This allows the company to increase its local currency.
"For example, Fuel Company A can take ZW$83 million to RBZ and receive US$1 million, then exchange the US$1 million on the parallel market and receive ZW$100 million. Company A can then return to RBZ with ZW$83 million and exchange it for another US$1 million and keep ZW$17 million (equivalent to US$170,000) as profit. This is done without importing any fuel and leads to fuel shortages."
Two former Cabinet ministers, Tendai Biti (MDC) and Walter Mzembi (Zanu PF), have alleged Mnangagwa has beneficial ownership in Zuva, a fuel company.
Command Agriculture Programme (CAP)
The CAP was driven by Kudakwashe Tagwirei's Sakunda Holdings, under which Sakunda provided farmers with farming inputs for the production of maize and wheat and recouped the financing from the government.
"What looked like a sensible plan on paper was described by Minister of Finance, Professor Mthuli Ncube, as a programme that "created opportunities for arbitrage, leakages and corruption", while the government's Debt Management Office (DMO) bemoaned that the agreement between government and Sakunda did not specify the prices of inputs, leaving room for overpricing.
"The RBZ issued non-tradeable Treasury Bills to Sakunda. Then, instead of buying farming inputs directly from suppliers, government contracted Sakunda to raise finance from banks, using the Bills, and then purchased inputs on behalf of the government. The CAP was initiated during the Mugabe-era, but was largely steered by the Mnangagwa faction and the military. The inputs were procured from SOEs and a network of companies, some of which are closely linked to Tagwirei, Mnangagwa and the military. These include: Fuel from Puma and Trek, companies in which Sakunda had shareholding, and from Zuva.
"Fertiliser from Fertiliser, Seed and Grain (Pvt) Ltd (FSG), a company run by Steve Morland, which was registered in 2010 and had negligible market share until it started supplying CAP inputs. Fertiliser from Sable Chemicals and ZFC Limited. Agrochemicals from Fossil Agro, a subsidiary of Sakunda, whose CEO Dr Obey Chimuka is a key Tagwirei proxy. A Parliamentary investigation on diamond mining in Marange found that Chimuka illegally traded in diamonds, pointing to possible involvement by Tagwirei in diamond looting.
Government has since shelved CAP.
According to the report, lack of investment in Zimbabwe for the last two decades has created two key dynamics for the mining sector: (1) the country is under-explored, and it is one of the few frontiers left in the world, and (2) the informal sector has taken over the spaces left by the formal sector. Cartels have been formed to expropriate and hoard mineral deposits, which are then sold on for large profits. The informal mining activities have become a key source of gold and gemstones that cartels smuggle out of the country.
"Accounting for 60 percent of the country's export revenue and a substantial share of foreign direct investment (FDI), the mining sector has long been attractive to economic rent seekers. A wide range of illicit activities occur in the sector. These range from trade misinvoicing to tax evasion; and smuggling of minerals to speculative hoarding of mineral concessions," the Maverick Citizen report added.
"For example, Company A can acquire a platinum deposit worth US$1 billion from the state by obtaining a licence to explore and/or mine the deposit for a relatively small amount of money. The beneficial owners of Company A can then sell the deposit for US$100 million to a larger multinational mining company and make an astronomical profit.
"It is this larger company that will then go on to produce the platinum and realise the full value of US$1 billion over a long period of time, while paying royalties, fees and taxes to the government.
"The looting of Marange diamonds is a well-studied case that does not need repeating. Mugabe, Obert Mpofu and elites in the military, police, Zimbabwe Prison Service (ZPS) and Central Intelligence Organisation (CIO) enriched themselves through diamond mining ventures in which local entities formed joint ventures with Chinese, Russian, South African and Lebanese investors. Following substantial depletion of the alluvial diamonds in Marange, cartels have shifted their attention to the gold, nickel and platinum deposits."
In the report several politically exposed persons (PEPs) and companies are mentioned. They include Tagwirei through his mining company Landela, Great Dyke Investments (GDI), a joint venture between Afromet JSC, a subsidiary of the Russian company Vi Holding, and Pen East Mining Company, (a company owned by ZMDC and the military), and Karo Resources, owned by Loucas Pouroulis, whose links to Mnangagwa date back to the second DRC War.
Landela's chief executive is David Brown, a former CEO of Implats, which owns Zimplats and half of Mimosa.
"Brown is therefore the former boss Winston Chitando, the Minister of Mines, since Chitando was employed at Mimosa before becoming Minister.
"A substantial amount of gold is smuggled out of Zimbabwe. Due to the secrecy under which smuggling is done, it is difficult to ascertain how much gold is smuggled out. The Minister of Home Affairs, Kazembe Kazembe, has stated that close to US$ 1.2 billion worth of gold is smuggled annually; while Finance Minister Ncube has suggested that between 30 and 34 tonnes of gold were being smuggled to South Africa each year, valued at around US$1.8 to 2 billion at current global gold prices.
"Zimbabwe reports exporting US$611 million worth of gold to the UAE in 2018. However, the UAE reports that US$ 821 million worth of gold was imported from Zimbabwe. Therefore, US$210 million worth of gold was taken out of Zimbabwe with no official reports of the exports made to government. Zimbabwe has an abundance of gold and has some of the highest presence of gold per square kilometre in the world.
"While illegal gold trading and smuggling is diffused and involves a large number of actors, the smuggling of significant amounts of gold usually involves cartels. PEPs are widely reported to control the production and trading of gold in many parts of Zimbabwe. President Mnangagwa is widely reported to control violent gangs of miners and have vested interests in ASGM (artisanal and small-scale gold miners). PEPs also collude with money men in gold smuggling, and PEPs ensure that the smugglers evade border controls."
Under the Mnangagwa administration, reports suggest PEPs also continue to abuse their offices (without collusion with the private sector) in the hiring of buses by ZUPCO, a joint venture company in which government has a controlling stake.
"After years of inactivity, ZUPCO has been resuscitated through acquisition and the hiring of buses. ZUPCO is alleged to have hired buses from companies owned by PEPs. This abuse by PEPs has been compounded by collusion between PEPs and the private sector. A total of 162 buses have been bought by Landela Investments at an alleged price of US$58 900 each and sold to CMED at US$212 962 each on a hire-purchase agreement."
The report also noted political power shifts barely affected cartels.
The findings show that when a patron loses control of the state, most cartels that emerged from collusion between PEPs and the private sector tend to survive the patron's fall. However, most runners lose their privilege and access to economic rents. Several cartels and money men survived the contentious power shifts in 1980 and 2017 "because they were quickly able to switch allegiance when things happened".
"John Bredenkamp is a good example. He ran a smuggling cartel in Rhodesia, which played a key role in evading UN sanctions on the Smith administration, exporting tobacco and importing arms on behalf of the state. Bredenkamp went on to partner with the Zimbabwean military in diamond mining and arms deals during the second DRC War, help Mugabe equip his farms, and contribute to the construction of the Zanu PF Headquarters.
"He also actively pushed for Mnangagwa's ascendancy to the presidency and was seen as an ally of the military. Kudakwashe Tagwirei, Billy Rautenbach, Univern and the Rudland brothers have, in similar fashion, been able to not only survive Mugabe's fall, but also entrench their cartels under the new administration.
"There is a strong probability that some cartels have already made in-roads in forging relationships with former and current leaders of the opposition as a means of ensuring their survival beyond Zanu PF's fall."